Crude Oil Inventory/’000 BBLS
Current: 373,918
Actual Build/(Withdrawal): (9,874)
Economist Average Estimate: (3,114)
Previous: 383,792
Click here for the chart with five year averages.
CRUDE OIL IN THE MEDIA
*Fracking Firms Face New Crop of Competitors – WSJ
So many companies have jumped into the hydraulic-fracturing business that the price of performing the key part of the oil- and gas-drilling technique has plunged in recent years, forcing fracking’s pioneers to play up new technologies to stand out. Schlumberger Ltd., Halliburton Co. and BJ Services, a company that is now a subsidiary of Baker Hughes Inc., once did nearly all the hydraulic-fracturing work in the U.S., helping energy companies unlock previously unreachable oil and natural gas in shale formations and ushering in a boom in domestic energy production. – Read More
*Libya’s Biggest Oil Terminal is Operating, Guards Say – Bloomberg
Libya’s largest oil export terminal, Es Sider, and another nearby, are back in operation today after a pay deal was accepted by security staff, the country’s Petroleum Facilities Guard said. The Es Sider terminal and Ras Lanuf port, which serves an export refinery with the same name, were shut on July 5 after security staff went on strike to demand better pay and conditions. “It’s final, the disputes have been resolved, they are back at work today,” Walid Mohammed, public relations director of the Defence Ministry’s oil security force, the Petroleum Facilities Guard, said in an interview at the PFG headquarters in Tripoli. – Read More
*OPEC Doubts if Oil Supply Will Keep Up With Growing Demand – WSJ
OPEC said Wednesday that global oil demand growth will accelerate next year, rising by about 1 million barrels a day, and expressed doubts about whether expected increases in supply will keep pace. The forecast from the oil exporters’ group, its first for the year ahead, comes as crude prices have climbed sharply following the political crisis in Egypt, and data Tuesday showing an unexpectedly large reduction in U.S. oil stocks. The August contract for U.S. light sweet crude on the New York Mercantile Exchange was up $1.12, or 1.1%, at $104.65 a barrel Wednesday morning, its highest level in 14 months. – Read More
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*OPEC Says Commodity Supercycle Waning, Little Upside – CNBC
The commodity market’s “supercycle” of strong growth is waning, OPEC said on Wednesday, with commodity prices currently in transition mode to slower growth rates. OPEC (the Organization of the Petroleum Exporting Countries) joined a chorus of analysts who have been warning for several months that the era of high prices for commodities is ending. The group cited a slowdown in emerging economies, in particular China, coupled with decelerating foreign investment in those markets, as an explanation. – Read More
*WTI Advances to 14-Month High Slimming Brent Gap to $3 – Bloomberg
West Texas Intermediate jumped to its highest level in 14 months amid declining crude stockpiles in the U.S., narrowing its discount against Brent to less than $3 a barrel for the first time since 2010. Futures climbed above $105 a barrel for the first time since May 3, 2012. Crude inventories fell by 9 million barrels last week, said a person with knowledge of data from the industry-funded American Petroleum Institute. A government report later today may show that supplies dropped by 3.2 million barrels, according to a Bloomberg News survey. OPEC forecast lower demand for its crude in 2014. – Read More
*Tradition meets temptation as Amish communities in Ohio, Pennsylvania debate fracking – Associated Press
Amish communities in Ohio and Pennsylvania are debating a temptation — the large cash royalties that can come with the boom in oil and gas drilling, or fracking. Jerry Schlabach (SHLAH’-bahk) is an Amish resident of Berlin, Ohio. He says that just as with any other community big money can bring spiritual corruption. He says that if the Amish use the wealth wisely, the drilling boom could be a positive thing. – Read More
*Fatal Oil Train Disaster Brings Scrutiny to Oil-by-Rail Boom – CNBC
The catastrophic crash of an oil-laden freight train in a small Quebec town last weekend will bring more scrutiny to the railroad industry’s transport of oil and may boost the case for pipeline development. But it is unlikely to slow the momentum of rail shipments of oil in North America, which has grown dramatically from about 100,000 barrels a day in 2010 to about 900,000 barrels a day by the first quarter of this year, according to IHS CERA estimates. “This was a freak accident. The record of this industry in safety overall in moving a lot of hazardous product has shown steady improvement over the last decade, and I’m very convinced that there will be steps taken to continue this trend,” said Tom Petrie, chairman of Petrie Partners. “This is a horrible tragedy without question. It’s such a freak accident. – Read More
*Alaska Seeks Wildlife Refuge Access in Oil Hunt – WSJ
Alaska asked the federal government to let the state conduct seismic testing at the Alaska National Wildlife Refuge to determine how much oil and gas might be underneath a portion of the 19-million-acre refuge. The request, unveiled Tuesday by Republican Gov. Sean Parnell, is the latest move in a continuing fight between state officials, who are eager to boost oil and gas production, and the Obama administration, which opposes drilling in the home of polar bears, caribou and other wildlife. – Read More
*Coast Guard Responds to Well Leak in Gulf – Reuters
The U.S. Coast Guard on Tuesday said it was responding to a leak from a natural gas and crude oil platform owned by Energy Resource Technology in the Gulf of Mexico. Talos Energy President Timothy Duncan was quoted by the Houston Chronicle blog FuelFix.com Tuesday as saying the well, 74 miles off the Louisiana coast, has been inactive for 15 years and was in the process of being abandoned. Talos is the parent of Energy Resource Technology. Duncan, in the news report, was quoted as saying the age of the tubing may have contributed to the incident, and that the company was doing everything possible to get the well under control. He expected the well to be under control within 24 hours. – Read More
*Why America Is Losing Its Gas-Guzzling Ways – CNBC
A fundamental and dramatic shift is happening in America when it comes to our addiction to gasoline. We’re slowly but steadily cutting back on our gas-guzzling ways. This doesn’t mean we’re going back to the days of the horse and buggy. But make no mistake: The amount of gasoline we consume is dropping, and the implications go well beyond the auto industry. “We are seeing a modest sea change in America’s gas consumption patterns,” said Tom Kloza, chief oil analyst with GasBuddy.com. “There’s not any one factor behind it, but several factors. I think we’ve seen the peak in U.S. gas consumption.” – Read More
RESEARCH COMMENTARY
*SunTrust Robinson Humphrey (7.10.13)
Changing commodity deck, price targets. Note 2013E/2014E WTI prices rise ~$4/~$3 to $95.50/$93.13, Brent prices decline ~$3/~$2.50 to $105.14/$98.28 and gas tumbles ~$0.65/~$0.25 to $3.76/$4.01. Targets move as follows: AREX from $25 to $26; CPE from $5.50 to $5.25; CWEI from $45 to $46; CXO remains at $92; EGN from $68 to $69; FANG from $43 to $44; LPI from $21 to $22; PXD from $170 to $179; REN remains at $9. Rationale on pages 4 and 5.
Approach – Main question appears to be whether Approach will add a fourth horizontal rig and boost 2H13 capital spending. We do not have a great read but have not modeled Approach adding the rig until 2014. Results from the Elliott wells on the east will likely not be available until after the 2Q call.
Callon – Results from Taylor Draw may improve from the first test, which was sidetracked. It appears Callon may start testing Midland County horizontals late this year and could boost its $125 million budget. We would likely see such a move as value-neutral given inventory implications, though it could lead to a greater cadence of data points that could speed the realization of value.
Clayton Williams – Should have results from its third Eagle Ford test on the 2Q call. Not expecting much movement on potential southern Delaware Basin JV as we understand a private company put its nearby acreage on the block, perhaps tilting the balance of power toward a potential buyer.
Concho – We expect an update on Northern Delaware extended reach lateral wells, where Concho is increasing length from its 1-mile average to as long as 2.5 miles. Concho seems encouraged by M&A in the Southern Delaware, but is cognizant of the differences in geology and oil/gas cuts across Reeves County. While we do not expect stacked-lateral results until 2H13, Concho should discuss improving takeaway, translating to uplift in realized prices.
*Wunderlich Securities (7.10.13)
Summary
The Permian Basin is still evolving and being delineated. We like the Permian for the variety of stacked pays offered and E&Ps are just starting to understand the potential of its resource plays. Names within our coverage with assets in the Delaware and Midland Basins include: Approach Resources (AREX-$26.72, Buy), Berry Petroleum (BRY-$40.74, Hold), Clayton Williams Energy (CWEI-$45.86, Buy), Concho Resources (CXO-$88.34, Buy), Diamondback Energy (FANG-$36.50, Buy), Energen Resources (EGN-$55.78, Buy), EOG Resources (EOG-$142.22, Hold), Matador Resources (MTDR-$11.72, Buy), Resolute Energy (REN-$8.30, Buy), Rosetta Resources (ROSE-$46.29, Buy), and Whiting Petroleum (WLL-$48.83, Buy).
The southern Midland Basin Wolfcamp play moves to development mode. The horizontal Wolfcamp Shale Play in the southern Midland basin is entering development mode and covered names leveraged to the south are EOG and AREX. We are expecting test results from Wolfcamp B wells from North and Central Pangea from AREX, and with financing and personnel in place, the company is on track to develop the play in the coming years. EOG recently announced some solid wells from the play and REN has acreage adjacent to these wells.
The northern Midland Basin Wolfcamp play has big exploration potential. This spring, Pioneer Natural Resources (PXD-NR) tested the DL Hutt well in Midland County with a 24-hour IP of 1,693 boepd well (75% oil). The horizontal well had a 7,380 foot lateral leg. PXD also announced results from the Mabee K #1 H well in Martin County, with 24-hour IP of 1,572 boepd with 77% oil content. The spotlight will be on Northern Midland Basin Wolfcamp Play this quarter, and covered names leveraged to this play are FANG given its first 10 wells have been comparable to PXD’s and REN given its acreage proximity to multiple successful players.
FANG has the financial strength to continue pioneering the horizontal push. Despite being a relatively small company in the Permian (and new to the public markets), FANG has been one of the front runners of horizontal Midland development in the Wolfcamp and now has 10 strong well results to prove its operational and asset strength. Look for this to continue given it just added a third horizontal rig in June and intends to add a fourth in 4Q13 in order to continue to dramatically increase production (added about 1,000 boepd in May alone to get to 7,000 boepd) and boost reserves (no horizontal wells currently deemed as proven).
REN kicking off its own horizontal program should bring more attention. REN recently spud its first of three horizontal Permian wells during 2013, targeting the Wolfcamp B. These wells will be near multiple successful FANG and privately held RSP wells so prospects look strong as REN looks to begin horizontal operations on its 20,000 net Permian acres. If successful, we believe REN could see a big move in terms of production, reserves, and potentially its stock price given investors seemingly have not grasped its potential value here.
CXO has high hopes for the Delaware Basin. CXO favors the Delaware Basin, which is better developed to the north and more exploratory to the south. In the Southern Delaware Basin, CXO has 130,000 net acres in Reeves and Pecos counties and has tested some very strong Upper Wolfcamp wells. The Trust Buster well in Reeves County began production in April with a 30-day IP of 557 boepd (57% gas). The Boldest Hayter well in Pecos County came on in March with a modest IP. We like the play and would wait for these wells to stabilize before passing judgment.
CWEI sold Wolfberry assets to focus on the Wolfbone and EGN has results from both basins coming soon. CWEI has 170,000 net acres in the Permian Basin post sale, of which about 85,000 net acres are located in the Southern Delaware Basin targeting the Wolfbone Play. In the Midland Basin, CWEI has 37,000 net acres in Sterling and Glasscock counties prospective for the Wolfcamp Shale. EGN, with more than 300,000 net acres in the Permian, is expected to announce test results from its first horizontal wells in both the Delaware and Midland basins shortly.
Newcomers to the Delaware Basin. MTDR has more than 22,000 net acres in the Delaware Basin. The company has drilled the first Ranger well in Eddy County, NM, and is drilling a second now. ROSE entered the play by acquisition and has about 40,000 net acres. For 2013, the company plans to ramp up to six rigs drilling mostly vertical wells and participate in non-operated horizontal wells. ROSE will start drilling its own horizontal wells in 2014.
*Baird Equity Research (7.9.13)
International rig count up +50 M/M. The Baker Hughes International rig count was released this morning, showing a total foreign rigs increase of +50 M/M. The increase was led by oil rigs (+21 M/M) to 1,010, with rigs increasing +20 in the Middle East and +2 in Africa, offsetting a -3 decrease in Latin America. Gas rigs increased +17 M/M to 264, driven primarily by a +8 increase in Europe and +7 in the Middle East. The overall M/M rig increase was split with +40 land rigs and +10 offshore rigs.
*Raymond James Equity Research (7.7.13)
Here’s a fun fact: If you look back to the original project timeline set out for the Keystone XL pipeline, Canadian oil sands production should already be flowing down to the Gulf Coast. Alas, in the 3+ years since this project was first hatched, the Keystone XL soap opera has done little more than garner headlines and serve as political fodder. On second thought, there’s really nothing “fun” about this for Canadian oil sands producers. Without the pipeline infrastructure in place to get past Cushing, the Canadian heavy oil benchmark (Western Canadian Select, WCS) has wallowed at an average $30/Bbl discount to its comparable global heavy crude benchmark since the start of 2013 – costing oil sands producers over $60 million per day, or the annual equivalent of ~$22 billion. Now we’re not here to join the political circus but rather to pose the question: “Does the U.S. even need Keystone XL anymore?” Make no mistake, we believe oil sands supply will find its way down to the Gulf Coast, with or without Keystone XL. In fact, we believe the start-up of several other pipelines should alleviate the Canadian oil sands logjam by mid-2014, serving to prop up WCS pricing. Looking out over the next two and a half years (by year-end 2015), the industry is projected to bring online over 1 MMbpd of heavy-focused Midwest-to-Gulf Coast pipeline capacity, on top of 300+ Mbpd of incremental crude-by-rail loading capacity out of Alberta. Even if Keystone XL were given the green light today, it still wouldn’t start up until 2H15. Bottom line: Keystone XL will not be especially relevant over the next several years, although the steady growth of oil sands supply is likely to catch back up to pipeline infrastructure by 2017. Today’s Stat of the Week, a follow-up to last’s Monday’s Stat on the Canadian oil sands growth curve, delves into this theme.
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